20 May 2009

FT: European plan for financial regulation faces UK obstacles

Proposals for a radical overhaul of financial supervision in Europe are likely to put Brussels on a collision course with the UK. A draft suggests that EU officials push ahead with the two-tiered approach suggested by Jacques de Larosiere.

Proposals for a radical overhaul of financial supervision in Europe, due to be published next week, are likely to put Brussels on a collision course with the UK.

 

A draft of the European Commission's working document on financial supervision, obtained by the Financial Times, suggests that EU officials are determined to push ahead with the two-tiered approach suggested this year by Jacques de Larosière, the former French central banker, as they try to guard against future financial crises.

 

In particular, the draft recommends the creation of a European Systemic Risk Council, to assess and warn of threats to financial stability in the region.

 

A "European system of financial supervisors" is also to be set up to oversee individual banks and financial institutions. Linked to this, there are plans to upgrade three existing pan-EU coordinating committees to become European supervisory authorities for the banking, insurance and securities sectors respectively, with recommendations that the "strengthened framework" be up and running in 2010.

 

The three new bodies would be asked to develop harmonised rules and common approaches to supervision and to settle potential disputes between national supervisors, who would continue to handle day-to-day matters.

 

The organisations could also be given responsibility for supervising "certain entities with pan-European reach [such as] credit rating agencies and EU central counterparty clearing houses", the draft says.

 

However, it is understood that these proposals are likely to encounter fierce resistance from the UK authorities. Sources familiar with the UK position said that one main objection would probably centre on the legality of giving binding mediation powers to European supervisory authorities, so that they could ultimately determine the outcome of a dispute between national supervisors.

 

The other fundamental concern is likely to centre on the splitting of supervisory responsibility from fiscal responsibility - and allowing the new pan-EU bodies to supervise entities which, in a crisis, might need bail-out funds from national governments.

 

A UK government spokesperson said last night: "We will consider [the report] carefully when the document is published.

 

"It's a starting-point for discussion."

 

Proposals for the European Systemic Risk Council look less contentious. In the draft, the Commission backs Mr de Larosiere's suggestion that the ESRC be chaired by the president of the European Central Bank but adds: "The ESRC chairperson could, alternatively, be any central bank governor elected by the membership.

 

"If the chairperson comes from a central bank within the euro system, it would seem appropriate that a vice-chairperson should be elected from among those member states outside the euro area, and vice versa."

 

The draft also stresses that the ESRC would not have any legally binding powers but would report regularly to member states and the European parliament

 

The Commission's working document is due to published on May 27. It might then be discussed by EU finance ministers as early as June and, possibly, reviewed by EU leaders when they meet at a summit later that month.

 

Depending on the political progress made during the summer, the Commission could then draw up more detailed legislation by the autumn.

 

By Nikki Tait in Brussels

 

Copyright The Financial Times Limited 2009

 

© Financial Times